Towards an Exposure Draft—Cover paper (Agenda Paper 13)

The objective of the equity method project is to develop answers to application questions about the equity method, as set out in IAS 28, using the principles derived from IAS 28 where possible.

The purpose of this session was to ask the IASB:

• to clarify its tentative decision regarding transitional requirements for the proposed amendments to IAS 28, following feedback on how those transitional requirements would be applied; and
• with regard to the due process steps for the exposure draft (ED) of proposed amendments to IAS 28, if it agrees to set a 120-day comment period; for permission to begin the balloting process; and if any IASB member plans to dissent from the proposals.

This paper was not discussed as it was an overview paper.

Towards an Exposure Draft—Transitional requirements (Agenda Paper 13A)

At its November 2023 meeting, the IASB completed its technical discussions on the application questions in the scope of the equity method project.

The purpose of this session was to respond to IASB member questions at the November 2023 meeting, and to clarify the IASB’s tentative decision on retrospectively applying the requirements to recognise the full gain or loss on all transactions with its associates or joint ventures, following feedback on how that decision would be applied.

Staff recommendation

The staff recommended that the IASB proposes:

• to clarify its tentative decision that an investor or a joint venturer would retrospectively apply the requirement to recognise the full gain or loss on all transactions with its associates or joint ventures. An investor or joint venturer would apply the proposed requirement by recognising the remaining portion of the restricted gain or loss. The cumulative effect of that gain or loss would be recognised as an adjustment to the opening balance of retained earnings at the transition date in accordance with IAS 8 (Recommendation 1);
• that, on initial application of the proposed requirements, if an investor or joint venturer had previously estimated the recoverable amount of an investment in an associate or joint venture at transition date, an investor or joint venturer would reduce the carrying amount to its recoverable amount. An investor or joint venturer would recognise the reduction as an adjustment to the opening balance of retained earnings (Recommendation 2);
• that an investor or joint venturer that chooses (or is required) to present more than one period of comparative information may present comparative information for any additional prior periods:
  • adjusted for the effects of the proposed requirements. The transition date would be the beginning of the earliest adjusted comparative period presented; or
  • not adjusted for the effects of the proposed requirements. The investor or joint venturer would identify the comparative information as unadjusted and disclose that comparative information has been prepared on a different basis, explaining that basis (Recommendation 3); and
• an exemption from disclosing the information required by IAS 8:28(f) for the current period and for any additional prior period that the investor or joint venturer presents unadjusted (Recommendation 4).

IASB discussion

Almost all IASB members supported Recommendation 1 as it clearly explains what is required upon transition and it is expected in most cases that management would have the required information to apply this retrospectively. Many IASB members also supported the reference to IAS 8 to provide guidance in case retrospective applicable is impracticable. A few IASB members noted that the approach might need to be amended (such as having a modified retrospective approach) depending on the feedback that will be received in response to the ED. One IASB member said that the costs of applying it retrospectively are likely to outweigh benefits and a limited retrospective approach might have been more practical.

Almost all IASB members supported Recommendation 2 as it seemed to be a balanced approach. They would like to see the feedback received on it in response to the ED. Several IASB members said that while testing impairment at transition date would have been the ideal solution, the cost associated with it was likely to not exceed benefits for many companies. Many IASB members also agreed that other considerations might require the use of hindsight which was a valid concern as it is not permissible when applying a new accounting policy. One IASB member said that if there is no impairment recorded at transition date, then it would be recorded in the first reporting date after the transition date which would not result in useful and timely information. One IASB member did not agree with the staff recommendation and proposed it might be better to take only the excess of impairment over gain to the profit and loss statement.

All IASB members supported Recommendation 3 as it provides some relief to the preparers that present more than one period of comparative information. A few IASB members said that the recommendation would allow regulators to put requirements for the addition period(s) presented.

There was no discussion on Recommendation 4 as the IASB members were ready to vote on it.

IASB decision

On Recommendations 1 and 2, 13 of the 14 IASB members voted in favour of the staff recommendation.

On Recommendation 3 and 4, all IASB members voted in favour of the staff recommendation.

Towards an Exposure Draft—Due process and permission to begin the balloting process (Agenda Paper 13B)

The purpose of this paper was to summarise the steps in the Due Process Handbook that the IASB has taken in developing the ED of proposed amendments to IAS 28 and to ask the IASB the following with regard to the ED:

• if it agrees to set a 120-day comment period (Question 1);
• if it gives permission to begin the balloting process (Question 2); and
• if any IASB member plans to dissent from the proposals (Question 3).

Staff recommendation

The staff recommended the IASB publishes an ED with a comment period of 120 days.

IASB decision

There was no discussion on this paper as the IASB members were ready to vote on it.

On Question 1, all IASB members agreed to set a 120-day comment period.

On Question 2, all IASB members gave permission to begin the balloting process.

On Question 3, 1 IASB member stated intention to dissent from the proposals.